BASIC Microeconomics IDEAS Flashcards
Factors of production
The resources used in the production of goods and services
Resources
The natural occurring and human-made items in an economy
Economic Problem
Resources are scarce but wants are infinite
scarcity
when resources are limited in supply
wants
desires, not needed for survival
needs
essential for living
Ceteris Paribus
all other things being equal / other things held constant / all else unchanged
Factor income
the reward to the factors of production
land
natural resources in production - oil, livestock
factor income: rent
labour
workers and their skills
factor income: wages
enterprise
a project or undertaking, typically one that is difficult or requires effort.
- entrepreneur: the person that organises production and is willing to take risks
- factor income: profit
capital
human-made aids to production
renewable resources
replaced at a rate equal to or quicker than consumption
non-renewable resources
cannot be replaced at a rate equal to its consumption
primary sector + secondary + tertiary
extraction of natural resources
manufactoring and assembly
services
short run
at least one FOP does not change
long run
all FOPs can change
very long run
change in technology
free goods
A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others
- Not scarce
- No opportunity cost
- No market price
- etc. air, sunlight
economic goods
goods and services are produced which satisfy consumers needs and wants directly
- Scarce
- Opportunity cost
- Market price
- etc. food, clothing
public goods
good or service that is provided without profit to all members of a society, either by government or a private individual or organisation
- Non-rivalry (non-diminishing) - consumption by one person does not reduce availability for others.
- Non-excludable - non-paying consumers cannot be prevented from consuming the product.
- Non-rejectable - everyone consumes, whether they want to or not.
- etc. street lighting, lighthouses, fireworks display, national defence.
merit goods
- private good
- external benefits
- one that has positive side effects when consumed
- underproduced and under-consumed due to information failure (consumers are not fully aware of the effects).
- better for a person than the person that may consume the good realises
- etc. education, healthcare.
- Government intervention: subsidies, laws & regulations, provide information.
demerit goods
- private good
- external costs
- one that has negative side effects when consumed
- habit-forming, relatively cheap and readily avaliable
- due to information failure (consumers are not fully aware of the effects).
- etc. alcohol, cigarettes.
- Government intervention: tax, laws & regulations, provide information.
private goods
an item that yields positive benefits to people
- Rivalry (diminishing) - consumption by one person reduces availability for others.
- Excludable - can prevent people who have not paid from consuming the product.
- Rejectable - people do not have to consume if they don’t want to.
- etc. clothing, food
public goods are provided by
the government due to the free-rider problem:
- Due to non-excludability, consumers have no incentive to pay.
- Private firms cannot charge a price and therefore can not make revenue or profit.
- Therefore, private sector will not provide the public good.
quasi-public good
Semi-rivalry and semi-excludable.
